While the immediate threat from the Federal Trade Commission’s (“FTC”) noncompete ban has passed, noncompetes continue to garner the attention of state legislatures throughout the country. We wrote extensively about the FTC’s ban and the legal challenges that followed as they developed, but questions still remain now that the rule is dead. In light of the state-level developments, here are some “New Year’s resolutions” to consider in 2026.
- Evaluate Whether to Draft Your Noncompete Agreements with State-Specific Provisions. If your business has employees in multiple states, you should consider drafting state specific provisions to clearly address limitations on restrictive covenants contained in employment agreements in the states in which the employees live or work.There are significant differences among different states’ laws governing noncompetes and other restrictive covenants, and in the absence of comprehensive federal regulations, compliance with state law can be essential to enforcement.
- Take Notice of Wage Limitations on Noncompetes. Some states have imposed “key employee” limitations which allow noncompetes to only be enforceable against certain “highly compensated” or “key” employees. For example, since 2022, noncompete agreements are only enforceable under Washington, D.C. law if the employee earns over $150,000.00. In Virginia, by comparison, noncompete agreements are unenforceable against “low-wage employees” whose weekly average earnings are less than the average weekly wage in Virginia and employees who are eligible for overtime payments. The low-wage employee threshold in 2025 is approximately $76,000.00.You should consider whether the employees you are asking to sign noncompetes satisfy applicable state wage thresholds. In some states, these wage thresholds change from year to year, so you should annually ensure that your compliance is accurate and up to date.
- Identify Any Industry Related Bans. Some state laws have or seek to ban or limit noncompete agreements with respect to certain industries, such as healthcare, veterinary medicine, or broadcasting.If you are seeking to have your employees enter into noncompete agreements, you should consider whether your business and your employees’ work falls within an industry where your state’s legislature has limited the use of noncompetes.
- Ensure You Are Providing Compensation When Necessary. If you are seeking to have existing employees sign new or updated noncompetes or other restrictive covenants, some state laws may require you to provide additional compensation or otherwise limit the scope of your noncompete agreements if you do not provide additional compensation. For example, under Idaho law, noncompetes are limited to 18 months if no additional compensation is provided beyond continued employment. On the contrary, many states do not require additional consideration for a noncompete agreement if the employee subject to the agreement has access to certain confidential or proprietary business information.If additional compensation is required, it may be calculated in a variety of ways, such as based on the employee’s base salary. You should check statute law to determine what, if any, additional compensation you may be required to pay to enforce or extend your noncompete agreements. Data used to make such calculations may change from year to year, so you should ensure that your calculations are up to date.
- Comply with All Notice and Timing Requirements. Many state laws require employers to provide an employee notice of certain information contemporaneously with asking the employee to sign a noncompete agreement. Information that may be required in these notices can include copies of state law and remedies the employee may be entitled to, directions to review certain parts of the agreement, or the right to consult with an attorney. Some states also require these notices to be signed. The timing of these notices may vary based on whether the employee is a new or existing employee.You should consult with state law to ensure you are complying with notice and timing requirements.
- Evaluate Whether to Limit Your Restrictive Covenants. It is important to reasonably limit your restrictive covenants to protection of legitimate business interests (such as confidential information and trade secrets and customer relationships) for them to be found enforceable. In light of some states’ disfavor towards restrictive covenants, more narrowly tailored covenants are much more likely to be enforced by the courts.
- Beware of State Penalties for Misuse of Restrictive Covenants. In addition to state law restrictions on noncompetes, some states now impose severe penalties for improper use of noncompetes. For example, in California, violating employers may be subject to injunctive relief, liable for civil penalties starting at $2,500 per violation, and responsible for attorneys’ fees under unfair competition law. In Illinois, repeat violations can give rise to civil penalties of $10,000.00 per violation. Colorado law even allows for criminal liability for misusing noncompete agreements.
If your business is considering having employees sign noncompete agreements, it is essential to make sure they are compliant with state law and reasonably limited to avoid civil and potentially even criminal liability.
BFV Perspectives,
Noncompete & Trade Secrets,
|
Dec 29, 2025
